Question

For each of the following examples, draw a representative isoquant. Make sure to label the axes. Explain briefly why you drew each isoquant the way you drew it.

a) A firm finds that it can always trade two units of labor for one unit of capital and still keep output constant, regardless of how many units of labor or capital have already been used.

b) A firm needs either cats or dogs to produce its output. Cats and dogs don’t get along, so if they have to work together, they become much less productive.

c) A firm can hire only full-time employees to produce its output, or it can hire some combination of full-time and part-time employees. For each full-time worker let go, the firm must hire an increasing number of temporary employees to maintain the same level of output. (Put full-time workers on the x axis and part time workers on the y axis.)

Answer 1

Isoquants tell the combination of two inputs which would yield the producer the same amount of output. The following are the three isoquants for all the parts.

Dogs Part time opital Cats Labour (a) full time (c (5)

a) Here, since the inputs are used in a fixed proportion, thus the isoquants would look like L shaped. Here the inputs are substitutable but are not perfect.

b) Here since only one of the inputs is required to produce the output, thus the isoquant curve will look like a straight line. No matter if you are on the horizontal axis or the vertical axis, the output will be the same.

c) Here, note that when we move on the horizontal axis towards reducing the full-time workers, the curve should increase which means that the increase in the part-time workers is higher than the rate of reduction of full-time workers. thus, we will have a downward sloping isoquant with a declining slope.